Preparing For a Renewable Future- The Business Models That Matter

If there is one thing the renewable energy sector cannot be accused of doing, it is to look back too much. The solar sector in particular has everything to look forward to, considering the strong momentum it has built up globally. The Covid-19 crisis has only sharpened those opportunities, and possibilities of even more support worldwide. Taking up the issue for debate at RE-Invest 2020 was a panel of industry leaders. Issues from storage, to merchant power, to trading came up, all handled in detail by the panelists.

Moderating the session was Rahul Munjal, CMD Of Hero Future Energies Private Limited.

Jayant Parimal, Formerly Chief Executive Officer, Adani Green Energy Limited and now Advisor to Chairman of Adani Group highlighted a key issue of pricing of REC (Renewable Energy Certificates) Blaming the CERC for making it an unviable market for generators by reducing prices to Rs 1, he highlighted how in developed markets, during certain peak periods, the cap is several times the normal average price. “REC can be a good source of revenue on merchant side, but due to CERC dictat, its stuck. “Even bankers  are vary of financing of merchant power consequently, he added.

On growing the commercial and industrial market, a key driver for renewable growth in comparable markets, he said we should either make open access free, or make it on a per KWh basis, as the current restrictions on this account made solar  with its 20 percent PLF very uncompetitive vis a vis thermal.

Pushing for a need to remove perverse incentives for discoms to  allow open access, he pushed for a more equitable market where discoms get due share of benefits too. Finally, he held out hope that the move to produce green hydrogen would bring in the much needed demand for future capacity additions in solar .

CS Setty, one of the three Managing Directors at State Bank Of India, who also heads its debt recovery division offered a bankers perspective on the sector. “What has actually made us comfortable is execution capability of the developer. Short execution time in two years or less is a positive. Most of the time they have contracts (PPA’s) for the long term giving long term cash flow visibility. Backed by strong payment mechanism. Finally, project developers , by getting projects refinanced, indicates a strong appetite for such financing, which is also a positive”.

On the downside, he highlighted recent low tariffs as a worrying signal. “If we look at abysmally low tariffs, how they can withstand the sensitivity of interest rates? They depend on so many variables, like material costs will go down, bank costs will come down, interest rates won’t change”. In RTC (Round the clock bids where a mix of renewable and thermal is allowed), thermal players  are not in the loop. Renewable bidders are bidding on hope. While conceptually it’s wonderful, you have to look at sustainability of cash flows, 100 percent availability. In peaking power, we are worried about high tariff here. Apart from convincing ourselves on technology used, how do you justify a Rs 6.80 paise peak tariff? The off takers off late have shown how they might even pull the plug on PPA’s? So worries on payment security”. He urged IPP’s (Independent  power producers) and tendering agencies to look at a package that will meet the risks of domestic lenders too. The risk taking capabilities of domestic lenders have to be taken into account. “If you don’t do that, then the tendering mechanisms will fail. “On merchant power, he highlighted its low share in the total electricity market right now at under 4 percent, besides the issue of competing with stressed thermal or gas power capacity, some of which have bid very aggressively for recent tenders. Urging the need to relook old models, he threw up the possibility of a a hybrd model with a PPA of say 12 years, where the investors have the liberty of selling under a PPA or move completely with merchant power later. With power shortages at an all time low, that itself would be a big block for merchant power growth, he added.

Basant Jain, Managing Director & Chief Executive Officer, Mahindra Susten said that as an IPP or EPC, the biggest challenge today is the lack of  incentive for developers to be innovative or efficient in the best use of technology. It’s a race to the bottom(price) . He shared how they have the data from a site in Saudi Arabia where they used solar trackers and bifacials. “From 7 a.m to 7 p.m, you get a flat power generating curve “ In India, during March to June, when even hydro power is not available, solar alone can solve the requirement with a little innovation, he added.

On the issue of selling solar as merchant power, he stressed that solar cannot be seen as equivalent of thermal where you can get very high PLF’s. “It’s high time that CERC takes cognizance of these things. If we do not start adopting storage in a smaller manner now, then we would struggle. A leap of faith is required, and technology adoption should be promoted”.

Multiple panelists spoke on storage, and how the focus right now needed to be on short term storage, to support tiding over peak power requirements, rather than massive long term storage.

On C&I relevance for the sector, Jain highlighted how unlike developed markets, where sustainability was a real driver in the shift to renewables, in India it is treated as a way to reduce power bill. This was one way why discoms were not supporting it. Making a case for a higher, but more predictable regime for discoms, he said that “after factoring Rs 2.5 to Rs 3 of wheeling charges solar can still be viable. There is still a market. Power being a state subject, there has to be consensus across different states to be consistent about policy regime for open access charges.”

Mr Parag Sharma, Founder & Chief Executive Officer, O2Power, also added to the skepticism on the need for long term storage now. “When India has just 180 GW of peak demand, 370 GW of generating assets, 230 GW is thermal itself, do we really need a long term storage. Tenders seem to be addressing long term storage, which is not required. What we need is high MW, low power battery size. Lead shd be taken by grid operators.”

He contended that solar+wind hybrids are low risk as compared to plain vanilla models for lenders. On RTC, “it has a significant component of merchant power, besides there are risks in PPA’s for not meeting conditions.”

For merchant power, he pitched for a derivatives market in India. “Many states do not allow purchase of merchant power. In some states, minimum period is 24 hours or 8 hours in others. These restrictions should go”.

Welcoming the launch of the Green Trading market (GTM), he urged for waiver of POC (Point of Connection) charges to make it more attractive for merchant power. He opined that long term storage would come into play only when the share of renewable energy crossed certain thresholds.

Anurag Mishra, Team leader (energy Group) USAID focused on the C&I market again. Urging a model that kept dicoms in the loop, he cited the US market where through a PPA there is a developer –discom PPA with back to back PPA with a corporate. He also spoke on how demand for renewable energy from many small and medium enterprises can be aggregated through a contract done via a discom. Finally, providing a time of day tariffs which is actually a reduction in tariff would help. So fixed power sources could be backed down during those periods to allow renewable energy free flow. This would also smoothen out  peak demand to an extent, and deliver significant savings  to utilities and customers.

Kresten Ornbjerg, Head of Global Public Affairs, at Vestas was the lone representative for wind energy. Referring to the recent push for solar over wind, Kresten highlighted the possibilities that exist with Wind Energy getting far more efficient, with over 4 MW for onshore, and even 10 MW for onshore installations possible now. There was a need to relook Wind for the gaps it could fill when solar is not there, and for treating it separately from solar, he said.